Scott Gottlieb, MD: I’m a physician and a Resident Fellow at the American Enterprise Institute in Washington. I previously worked at the Food and Drug Administration as the agency’s Deputy Commissioner and before that, as a senior official at the Centers for Medicare and Medicaid Services where I supported the agency’s policy work on coverage and payment, particularly related to new medical technologies. I spend my time now analyzing developments in policy and regulation and their impacts on innovation, medical care, and the public health. I work with firms engaged in the financing of early stage healthcare ventures, giving me a firm grounding in how policies conceived in Washington are impacting private entrepreneurship on Main Street. I work as a senior advisor to Avalere Health in Washington, and as a member of the Product Investment Board of GSK. I am also an editorial board member of the journal Value Based Cancer Care, the Food and Drug Law Institute’s Policy Forum, and as a Clinical Assistant Professor at the NYU School of Medicine. Follow Scott Gottlieb on Twitter @ScottGottliebMD. Scott Gottlieb's articles can also be found at http://www.aei.org/scholar/scott-gottlieb/

Will Sequester End Drug Approvals? Not Unless White House Wants it to

As sequester looms likely, there’s focus on what it means for Federal agencies, including the Food and Drug Administration (FDA). Last time FDA had its budget clipped (by a much smaller amount) it used the shortfall as reason to back off some of its commitments under the Prescription Drug User Fee Act (PDUFA) to review applications on pre-determined timetables. What will happen this time?

To consider the impact of these cuts, they need to be put in perspective of FDA’s historical funding, and the growth in its workload. In 2008, the drug center’s budget was $681 million ($354 million from funds allocated by Congress, and $327 million from user fees paid by industry). In 2009, the total budget grew to $802 million, and then continued to increase to $883 million in 2010, $950 million in 2011, and $979 million in 2012. For the 2013 fiscal year, the FDA requested a total of $1.259 billion.

At an agency-wide FY 2013 budget of $4.5 billion, the drug center’s $1.259 billion 2013 request represents about 30% of the agency’s total budget. Assuming FDA’s total $318 million sequester cut gets distributed proportionally between the FDA’s various parts, the drug center would take a $95 million hit.

To limit the impact of these cuts, most of them should be drawn from non-core programs, especially in the Office of the Commissioner (OC), where there is notorious bloat going back many decades. Part of it owes to the fact that OC often absorbs folks who wash out of jobs in the medical product centers but are firmly tenured at FDA. Part of it is the natural growth of government, and the addition of hundreds of new front-office “policy” jobs in recent years. If they cut from OC, few outsiders might notice. They should try to target the cuts. But FDA Commissioner Peggy Hamburg has some limits placed on her by the sequester law around how much she can distribute cuts more heavily on one program over another.

So what if a worst-case unfolds, and the cuts are distributed through FDA proportionally, with the drug center absorbing its full share?

Based on FDA’s 2012 budget (which the agency is still operating under), a $95 million cut from current appropriations would take FDA back to its 2010 funding level. So to understand the impact of sequester, it’s worth visiting what has changed in the drug center’s role and responsibility over the last two years.

A chunk of the additional money goes to the higher costs of carrying each of the agency’s full time equivalents (FTEs) – not as a result of pay increases, which have largely been withheld, but the rising costs of benefits. But most of that additional money went to new programs, and new employees.

In 2008, the drug center had 2,996 FTEs on its payroll. In 2010 the drug center employed 3,835 people. In 2012 it had 4,071 FTEs. Its staff has grown by about 35% of the past four years. Over that time, the number of early (investigational new drug) and late stage applications filed with the agency has remained largely stagnant. But that doesn’t mean the agency’s workload hasn’t grown.

The agency has taken on new obligations in the past two years in areas like post market drug safety, the creation of a pathway for follow on biologics, and regulation of new advertising channels like the Internet. But with its application load largely flat, it’s likely that FDA’s managers can re-jigger their priorities – and personnel, to absorb the looming cuts and bring staff levels to 2010 levels. Reviewers should be the last to be cut, although some newer ones could get axed.

Assuming the center gets clipped back to something near its 2010 budget and staffing levels, it will lose about 250-300 FTEs (once you factor in the higher costs for each FTE in 2012 compared to the costs in 2010). But since it takes so long to on-board people (owing to federal hiring rules) the drug center still has maybe hundreds of open slots that were authorized by the 2012 budget increases, but not yet filled. So the impact of the 250-300 lost slots is likely to be far less immediate once those open positions get frozen in order to offset the sequester losses.

It still means a number of folks will be terminated (especially contractors) and many more won’t be hired at all as open slots get held back. And since managers have limited authority to dismiss underperforming employees, and move people around (owing to government hiring rules and union restrictions), the cuts could fall most heavily on the newest hires. These are the people who are not yet burrowed in under federal work rules and can be more easily dismissed.

Yet some of these may be precisely the people that the agency most needs, because they were recruited exactly because they have skills closely matched to the agency’s current initiatives. So some of the new regulatory science policy work that FDA is doing could be hard hit, even if FDA is able to continue to keep pace with its day-to-day review function. While there will be important work that doesn’t get done, its unlikely that the cuts would have to compel the center to back off of its PDUFA review commitments. Even after the cuts, the drug center is still roughly 750 people stronger than it was just four years ago — even in a worst-case scenario.

The FDA Commissioner still retains some discretion to spare the medical product centers, and the food center, some of the brunt of these cuts. She should be using every tool she has to keep the cuts from impacting the core programs.

Observers are already calling these cuts “dramatic” – warning that it would decimate FDA’s programs. In view of the drug center’s recent growth, its solid leadership team, and chance that the Commissioner’s Office can absorb more of the cuts, the drug program can manage through the austerity.

Taking FDA’s budget back to 2010 levels shouldn’t be a reason for FDA’s core review programs to stutter

All of this, of course, center’s on FDA’s ability to take an earnest look at its budget and take measures to try and blunt the blow of these cuts. People close to the agency say that – until now – the White House has largely forbid the agency staff from making a realistic plan for how the sequester cuts could be mitigated. Now the FDA personnel are scrambling to put together sensible preparations.

It’s said that the White House didn’t want to weaken its hand in political negotiations over the sequester– and its current position that the earth will stop spinning the day after the cuts take place. So in the end, it may come down to whether politics or good prudence is allowed to guide the FDA’s reductions.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.